When the Pension Benefit Guaranty Corporation (PBGC) was created under ERISA in 1974, it charged every defined benefit plan a flat rate premium of $1 per plan participant. The premium was little more than a nuisance in 1974, but for 2015, the flat rate premium is $57 per participant and there is an additional variable rate premium of $24 per $1,000 of unfunded vested benefits under the plan (capped at $418 per participant).
As the premiums have increased over time, so have the compliance activities of the PBGC. Those activities are administered by the PBGC under its Premium Compliance Evaluation Program (the “Compliance Program”). As part of the Compliance Program, the PBGC reviews selected premium filing forms (Form CPF) to assess the accuracy of the information being disclosed with the premium payment. For example, under the Compliance Program, the PBGC may compare the number of participants reported on Form CPF for purposes of the flat rate premium to see that it matches the participant count reported on the Plan’s Form 5500. If those numbers do not match, you may receive a Compliance Program letter requesting that you explain the discrepancy.
If there is an error that resulted in a premium underpayment, the underpayment will need to be paid along with a significant penalty and applicable interest. Reduced penalties are available if the plan sponsor self-reports the error before receiving a Compliance Program letter. In other situations, there may be an explanation for the discrepancy. For example, a plan that has purchased an insurance contract to fund the benefit of specified participants would not report those participants on the Form CPF participant count, but would include them on the Form 5500 participant count. In such a case, the plan sponsor should respond to the Compliance Program letter with the explanation for the discrepancy along with any supporting documentation.
A Compliance Program letter from the PBGC should not be taken lightly.